Daniel Englander
Play It Again, Yingli July 9, 2008 at 6:50 AM
We’ll always have South Korea.
So goes the constant refrain from PV module manufacturers who’ve looked in the crystal ball and seen a future of dry markets in the U.S. and Spain. The current thinking is that Congress’s failure to renew the solar investment tax credit will significantly dampen demand in the U.S., Spain’s inability to make a decision on the direction of their solar policy will cause more than a few solar companies to begin looking elsewhere for new product markets. Even if Spain were to come clean before the September deadline, the government is likely to announce a capacity ceiling of between 500 MW and 1.2 GW, with a €0.10/kWh - €0.15/kWh drop in the country’s feed-in tariff - it stands currently at €0.42/kWh. And, really, it’s not like anyone’s going to diversify into Germany. So what’s a solar company to do?
South Korea has steadily built its solar industry over the past few years. In 2006, the country was importing 61 percent of its residential solar panels. By July 2007, it had cut that number to 45 percent, while growing its installed capacity from around 3.5 MW of grid-tied in 2005 to slightly more than 100 MW at the end of last year. As if by magic… Actually, as if by a combination of a $0.70/kWh feed-in tariff (that’s 0.45 in Travis dollars) and the concentration of metals manufacturers and electronics companies - Hyundai Heavy, DC Chemical, LG, Samsung, etc. Although the country has worked pretty hard to build a domestic supply market, a lot of companies - especially American companies - have looked to South Korea as an enormous growth opportunity. Certainly building out in South Korea would be better than broaching the bureaucracy of the French market or the regulatory ‘uncertainty’ of the Italian market, or even the slightly strange feta/silicon mix content requirement in Greece.
But that window now looks like it’s closing, and faster than a lot of producers had expected. South Korea has already reached the 100 MW feed-in tariff ceiling, and that $0.70/kWh rate may have proven a little too rich. The government is now threatening a 30 percent rate cut, instead of the orderly digression it had proposed at the outset. One explanation, again, is the country’s desire to grow its domestic industry. Back in college, the South Korean auto industry was the textbook example of import industry substitution in one of my international trade classes - subsidized to the hilt and pushed on the government by steel producers who couldn’t compete with the cold rolling Japanese. I’m not saying that’s happening here… but maybe it’s happening here. Another explanation is that the tariff is running dry, and there’s little political will to replenish it. Sound familiar?
So let’s come down from the guessing and bring some evidence into this situation. Yesterday I was forwarded a press release that I found kind of… stunning. Yingli Green Energy, one of China’s largest solar companies and a fairly successful vertically integrated firm, was happy to broadcast the fact that “it has entered into five new sales contracts to supply an aggregate of more than 7 MW of PV modules to five companies in Korea.” Right. Back in the market heyday of 2Q 2007, Chinese execs were doing these kinds of deals in their sleep, or with Elon Musk and a bottle of baijo in a Chengdu karaoke parlor. Is Yingli’s willingness to do (and announce!) such small deals a sign of leaner times to come? The company’s going to produce around 600 MW over the next year, though their 2008 module sales guidance has the company coming in between 255 MW and 265 MW of module shipments - only 100 MW more than they sold in 2007. This isn’t a criticism of Yingli, but just some evidence that producers may have already made their bets on a low demand scenario, and that South Korea - the one shining light for 2008 - may not come through after all.
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Daniel, once again your wholesale lack of solar industry understanding has you drawing ridiculous conclusions. YGE produces c-Si products; c-Si production costs are between $2-$2.20/watt while thin film production costs are between $1.10 and $1.25.
c-Si producers are facing extreme cost competition from thin film product coming from new AMAT plants and FSLR which can essentially be sold/installed at grid parity prices — as demonstrated by FSLR. That means thin film PV coming from these sources has a ASP [avg sales price] about the same as c-Si producer’s production costs. i.e c-Si = zero profit margins.
YGE is not slowing production because Spanish and Korean tarrifs are dropping, its lowering production because they can’t cost compete with a wave of new thin film coming to market. Until c-Si co’s adopt new tech e.g. umg, they’re in heap-um big trouble. Expect all c-Si production volume to slow and thin film with production costs close to $1/watt to expand rapidly. School’s out for now Dan.
Daniel, let me amend: thin film coming from multiple other sources including AMAT plants, FSLR, Shell’s 1gw CIS plant, possibly Nanosolar, Sharp, etc, etc, etc…
You’re wrong. (1) Yingli is cutting neither production nor sales. (2) You need almost two First Solar panels at 75 watts (for the top of the line panel) to equal one Yingli panel at 125 watts. So installed costs would be roughly equal. None of this matters if the demand markets are dry, which was the point here.
I’d stick with flipping houses if I were you.
Young Dan; Sorry to embarrass you once again but… Demand markets are not dry, you simply don’t understand the demand curve for PV.
Demand is based on price; at YSE’s last Q Avg Sales Price [ASP] of $3.90ish/watt demand is limited by subsides. At FSLR last Q ASP of $2.20ish demand is U N L I M I T E D because they can install this PV at grid parity — which is approx $3.50/watt [$2.20 pv cost $1.30 install cost/watt]
All of the thin film mfgr’s identified i.e. AMAT plants = approx 2gw/yr; Sharp = 1 gw/yr; FSLR Nanosolar [potential 1gw/yr], Shell [1gw/yr] etc, etc can produce PV that can be installed at grid parity prices while producing nice profit margins for the mfgr.
Demand for YGE’s overpriced PV will be limited or non-existent as thin film from the above lo-cost sources comes to market. But to be clear, demand for YGE’s product is not slowing because Korean and Spanish subsidies may be cut; demand is slowing for YGE because lo-cost PV is putting YGE out of business.
Regarding installed costs: please see the install video of AMAT’s 380 watt panel; note it requires 1/3 the hardware and wiring connections of a YGE panel — thus install costs are much lower for this thin film panel than for YGE’s panel. [it is clear from your reply you don't understand the cost break down for installed PV e.g. PV panel + mounting hardware + inverter, but I'll save you further embarrassment by demonstrating this point]
http://www.appliedmaterials.com/products/solar_sunfab_3.html
School’s out [again] Danny-boy.
Dude, you’re kind of weirding me out with all this “young” and “tender age” stuff. This is a family website.
Thanks for a good article Dan. RE: Steve’s comments, I fail to see how demand and pricing for c-Si could be influenced by thin film yet. One day maybe, but only FSLR and Unisolar are actually making volumes of the stuff in 2008. Next year, who knows what the output of the new AMAT and Oerlikon plants, operated by new entrants, will be? In the long run there are serious questions about market niches for different technologies and whether a utility-scale project market can exist without subsidy.
One question - what are “Travis dollars”? I know Bradford but am not familiar with this designation. Thanks a lot.